There is no doubt that in the recent past a number of emerging economies, above all the so-called BRIC countries, have considerably strengthened their (macro)economic position and gained resilience against external shocks. However, many of the circumstances on which this invigoration was based were exceptional and they revealed rather than refuted the importance that external and global factors still have for the developing world. It must not be forgotten that it was the combination of a global economic boom, high liquidity in international financial markets and a historical commodity price boom that enabled many developing and emerging economies to run current account surpluses which allowed them to reduce external debts and build up foreign exchange reserves. Yet, global economic prosperity is elusive and international capital flows are (in)famous for their volatility. Relying to much on them creates economic vulnerability.
Even so, compared to most other historical periods, many emerging economies have indeed become slightly less sensitive to economic developments in the industrialized world. However, to talk about “decoupling” means to throw out the baby with the bath water. The current financial and
economic crisis has demonstrated that even the bigger and stronger emerging markets remain closely tied to the fate of the developed world and thus vulnerable to external shocks. Despite the new strengths described above, all developing and emerging economies experienced either a recession or a considerable slowdown. Behind this lies the fact that – because of globalization – national economies have become more integrated. On the real economy side, it is obvious that international trade has gained importance for almost any country, thus making economic growth more reliant on export demand. At the same time, global business networks and cross-border production chains have made economies increasingly characterized by vertical specialization which has resulted in a major expansion of intra-industry trade, thereby amplifying contagion during times of crisis. On the financial markets side, emerging markets have successively opened up to international capital flows (mostly originating from developed countries), exposing themselves to the sentiments of foreign investors. All this has perpetuated or even reinforced economic linkages among countries in general and between
emerging and advanced economies in particular. Even the most potent of all emerging markets, China, with its huge (potential) domestic market and its large FX reserves, remains heavily sensitive to developments in the world economy and its exports markets. Now some argue that many commodity exporters (like Brazil) and Asian economies are loosening their ties to rich countries and actually coupling to China. Apart from the fact that this would not really be “decoupling” either, these
economies are, in essence, not decoupling from the developed world because this is where most of the final demand comes from. So, after all, emerging economies remain tightly linked to the world economy and its dominant players. Thus, decoupling – defined as decreasing sensitivity of economic activity in emerging economies to external and global factors – has so far been rather a myth than part of reality.
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